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Four new short-selling rules

The SEC has had four new final rule releases in the last two days, all of which deal with short selling:

Release 34-58785 requires certain institutional investment managers to file their short sales and positions of certain securities on Form SH. The disclosures will not be available to the public, for competitive reasons, but will be used by the SEC to measure short sales and evaluate short-selling activities. The rule is effective until August 1, 2009.

Release 34-58773 adopts Rule 204T of Regulation SHO and is designed to discourage already-prohibited “naked” short-selling activities. When a “fail to deliver” occurs in a short-selling transaction, the new rule requires that shorted securities be purchased or borrowed to close out the fail to deliver position by the time trading begins on the day following the failure to deliver. The rule should discourage the same shares being lent to different short sellers resulting in shares being sold that do not exist. The rule is effective until July 31, 2009.

Release 34-58774 adopts Rule 10b-21, the naked short selling antifraud rule. It specifically targets short sellers who lie about (a) whether they possess the shares they will short or (b) their intention to deliver securities for settlement. The rule is designed to prevent short sellers from selling short when they know beforehand that they plan on failing to deliver the shorted securities.

Finally, Release 34-58775 is yet another rule designed to stop fails to deliver, this time in the context of certain hedging activities of options market makers. Apparently the SEC feels certain options market makers should no longer be excepted from rules designed to prevent fails to deliver.